Invesco’s McGreevey: Unwind Bullish Bets on U.S. Dollar After Fed

Invesco Ltd., one of the world’s largest asset management firms, took advantage of the stability in the global bond markets in the past couple of weeks by scooping up U.S. junk debt, bank loans, Treasury bonds and some emerging market assets.

Greg McGreevey, head of global fixed income at Invesco Ltd., told the Wall Street Journal in an interview Tuesday that the buying followed the Federal Reserve’s decision on September 18 not to dial back its monthly $85 billion
buying in bonds.

Mr. McGreevey argues that the Fed may wait until January 2014 to start cutting the size of its key monetary stimulus given the still moderate pace of the economic growth. The fiscal gridlock in Washington this month also argues for
the Fed to keep the bond buying program steady in the near term, he said.

“We are not seeing significant growth in the U.S. during the second half of this year and in 2014,” said Mr. McGreevey. “The Fed’s policy outlook would keep bond yields from rising significantly.”

The Atlanta-based asset management firm has more than $700 billion in global assets under management including $234 billion in bonds. Mr. McGreevey is traveling in New York Tuesday.

Mr. McGreevey bets the 10-year yield, trading at 2.646% Tuesday, would range between 2.5% and 3% through the end of the year. He said the company started buying Treasury bonds when the 10-year note’s yield rose to 2.95% earlier in
September. After the Fed’s decision on September 18, he added more Treasury bond holdings.

Mr. McGreevey said he would consider booking profit from the Treasury bond holdings if the yield falls to the bottom of the range he anticipates. But he said he would hold Treasury bonds until the dust settles on the fiscal impasse.

His base case is that lawmakers would come up with a compromise, such boosting the debt ceiling for several months to give them more time to reach a broader fiscal accord. If this case pans out, he believes riskier assets will strengthen and Treasury bonds would decline as demand for safe havens likely eases.

For now, he places less than 10% odds that the U.S. would default on its interest payments for bond holders. He warns that a default would be “disruptive” to financial markets and taint global investors’ faith over the
safe-harbor status the U.S. Treasury debt market has enjoyed over the decades.

Mr. McGreevey said he favors high-yield high-risk corporate debt in the U.S. and Europe as calm returns to the bond market. In emerging markets, he said the company has bought Mexican peso and Mexico’s government bonds, while booking profits on Brazil’s currency.

The Fed’s decision on September 18 to keep printing dollars for the economy also prompted Invesco to unwind its bullish bets on the U.S. dollar versus some of its rivals such as the euro, said Mr. McGreevey.

Mr. McGreevey said he holds a neutral stance on the U.S. dollar in the near term but he believes the dollar would rally against the euro in 2014 once the Fed starts tapering bond buying.